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If you own a small business, the Section 179 deduction is one of the most important tax codes you need to be familiar with. In 2024, the Section 179 deduction limit for qualifying equipment purchases is $1,220,000, and the phase-out threshold is $3,050,000. In 2024, bonus depreciation is 60% for equipment placed into service from January 1, 2024, through December 31, 2024.
2023 Deduction Limit = $1,220,000
This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2022, the equipment must be financed or purchased and put into service between January 1, 2022 and the end of the day on December 31, 2022.
2023 Spending Cap on equipment purchases = $3.050.000.
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $3,670,000 on equipment won’t get the deduction.)
Bonus Depreciation: 60% for 2024
Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. In 2024, businesses can write off up to 60% pf the purchase price of an asset placed into service in the calendar year, and then depreciate the remaining 40% cost of the property over the course of several years.
The Bonus Depreciation is available for both new and used equipment
Here’s How Section 179 works:
In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example). Now, while it’s true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it
And that’s exactly what Section 179 does – it allows your business to write off the entire purchase price of qualifying equipment for the current tax year. This has made a big difference for many companies (and the economy in general.) Businesses have used Section 179 to purchase needed equipment right now, instead of waiting. For most small businesses, the entire cost of qualifying equipment can be written-off on the 2022 tax return (up to $1,080,000).
2022 Section 179 - Example calculation
For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please read the entire Section 179 website carefully.
- Equipment Purchases: $1,150,000
- First year write-off: $1,080,000
- ($1,080,000 maximum in 2022) 100% Bonus First year: $100,000
- Depreciation Normal 1st year depreciation: $0
- Total first year depreciation: $1,080,000
